Some European Countries Shore Up Public Pensions by Seizing Private Funds

January 7, 2011

Joseph Bishop-Henchman

Joseph Bishop-Henchman

All across the world, defined-benefit public pension programs are facing demographic pressures of more retirees and fewer workers, economic pressures of returns lower than expectations, and political pressures to make benefits more generous than can be sustained. Much of the private sector in the United States has switched over to defined-contribution retirement programs, such as 401(k) plans, which shift the risk (and reward) to the individual. The issue is one of the key ones we track at the state and local level.

[In] Hungary,…last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings. The Bulgarian government has come up with a similar idea. $300m of private early retirement savings was supposed to be transferred to the state pension scheme.[…]

A slightly less drastic situation is developing in Poland. The government wants to transfer of 1/3 of future contributions from individual retirement accounts to the state-run social security system. Since this system does not back its liabilities with stocks or even bonds, the money taken away from the savers will go directly to the state treasury and savers will lose about $2.3bn a year.[…]

[I]n March 2009, the Irish government earmarked €4bn from [the National Pension Reserve Fund] for rescuing banks. In November 2010, the remaining savings of €2.5bn was seized to support the bailout of the rest of the country.

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